17.16 The head of Italy's Lombardy region is being investigated for corruption, prosecutors said, as regional governments come under increased scrutiny due to the economic crisis.
Roberto Formigoni, a member of Silvio Berlusconi's People of Freedom party and the Catholic movement Communion and Liberation, is accused of getting luxury holidays and yacht rentals paid for by businessman Pierangelo Dacco.
Formigoni has been in charge of Lombardy, Italy's wealthiest region, since 1995 and has always denied media reports about corruption and cronyism.
17.02 The number of jobseekers in France rose for the 14th month in a row in June to hit its highest level in nearly 13 years, adding pressure on the new Socialist government, which has made fighting unemployment a top priority.
Labour ministry data showed the number of registered jobseekers in mainland France rose by 23,700 last month to 2.946m.
The jobless total was the highest since August 1999 and marked an increase of 0.8pc over one month and 7.8pc over one year.
FTSE 100 -0.1pc
CAC +0.2pc
DAX +0.2pc
IBEX +0.8pc
MIB +1.2pc
In the US, the Dow is up 0.4pc.
16.40 An association representing German banks has called for an extra year to implement tougher rules that would force them to hold more cash as a buffer against possible financial crises.
The BVR group of private and public banks called for a delay until January 1, 2014 for the entry into force of the so-called Basel III regulations due to the "enormous technical restructuring and implementation work" needed.
The planned implementation at the beginning of 2013 was "no longer realistic" said the group.
16.23 JPMorgan Chase has set up a contingency plan allowing it to resume trading the bonds of any nation exiting the euro area to avoid disruption to its clients, reports Bloomberg.
The largest US bank by assets said that while a break-up of the 17-nation currency zone was not its central view, the possibility has convinced it to establish procedures to limit any disruption to its bond-trading activities. The implied probability of a country leaving the monetary union is 59pc for next year, and 66pc by the end of 2014, based on bets at Intrade.com. Spain hasn't ruled out quitting the euro, El Confidencial reported this week.
16.08 Lord Lamont says George Osborne should keep his job as Chancellor after the Cabinet reshuffle. He told Sky News that sacking Mr Osborne would signal that the Government had "lost the guts" to deal with the deficit. He said:
...people talk as if there is massive austerity, but this is nothing compared with what is happening in Continental Europe.
Lord Lamont added that falling inflation meant:
the squeeze on living standards may be foming to an end. We may see an increase in living standards this year and next year and that would be good for the economy.
16.02 France and Spain's finance ministers have called for common bank supervision to be put in place by the end of the year. Pierre Moscovici and Luis de Guindos said in a joint statement:
Our common strategy for the stability of the euro area includes the adoption, by the end of this year, of a single supervisory mechanism for banks of the euro area, involving the ECB. We expect proposals by the Commission by September and commit to a swift negotiation. This supervisory mechanism will open the way for direct recapitalisations with appropriate conditionality.
15.30 Lord Oakeshott thinks Vince Cable should replace George Osborne in the next cabinet reshuffle (see 14.08). What do you think? Vote in our poll:
15.05 Sterling has fallen by more than a cent against the euro today, to €1.275. It looks like traders think that even more money printing or even a cut in interest rates is on the way...
14.31 Analysts at Morgan Stanley estimate that the one-off factors everyone has been talking about today formed 0.5 percentage points of the 0.7pc decline in GDP last quarter. In a note today, Melanie Baker and Jonathan Ashworth said:
But it isn't as bad as it looks: There are a number of special factors partly behind the decline, meaning the underlying trend, though clearly weak, was not quite as bad as the headline suggested. These included the extra bank holiday for the Queen's Jubilee, bad weather and the closure of a North Sea platform. Stripping out Construction and Extraction, for example, the economy would have contracted a more modest 0.2%Q. The ONS use a large degree of estimation for the last month of the quarter in particular. This time around, the last month of the quarter was June….also the month most likely to be affected by some of these 'special factors'. With respect to the weather, the UK saw its coldest June since 1991 and wettest June since 1910. With respect to the bank holidays, the extra Bank holiday for the Queen's Diamond Jubilee fell in June and the usual late May Bank Holiday was moved to June.
14.08 Former Lib Dem Treasury spokesman Lord Oakeshott has described George Osborne as a "work experience" Chancellor who should make way in the forthcoming cabinet reshuffle for someone who will get the economy growing again. Christopher Hope reports:
The peer suggested that Mr Cable should be appointed Chancellor in Prime Minister's reshuffle, which is widely expected in September.
He said that Mr Osborne did not have enough experience outside Government to run the Treasury, insisting that the UK needed its "A-team at the Treasury".
In withering criticism, Lord Oakeshott told BBC Radio Four's World at One that Mr Osborne was "doing well as a chancellor on work experience".
Asked if Mr Cable should be made chancellor, he replied: "Personally I would."
Vince for Chancellor? (Photo: Getty).
13.54 Portuguese President Anibal Cavaco Silva has called on Europe to do more to help Spain. He told Potuguese television:
Besides the very courageous efforts of the Spanish government it is our understanding that there is a need for a European response.
13.45 And here's Labour leader Ed Miliband's two pence. Today is the day the economic plan failed, he says:
13.42 PM David Cameron has also described today's GDP figures as "very disappointing". He told Sky News:
These are obviously very disappointing figures and they show the extent of the economic difficulties that we're grappling with, not least the situation right across the euro zone where our neighbours are also really struggling [...] It's vitally important that we redouble all our efforts to get on top of our debt, deal with our deficit, get our economy moving.
12.35 What has happened to the UK economy in the past when bank holidays have been moved around? The ONS tries to quantify the answer in a special bulletin today:
• In 1977, in a period of economic recovery, following recessions in both 1973 and 1975, GDP fell by 0.5 per cent in quarter two 1977 (when the Silver Jubilee took place). This was the only fall in GDP between quarter three 1976 and quarter four 1978.
• In 2002, in a period of economic growth following a modest slowing of growth towards the end of the 2001 as a result of a global economic downturn, GDP increased by 0.8 per cent in quarter two 2002 (when the Golden Jubilee took place), which was typical of the growth rates seen during 2002 and 2003.
• In 2012, following a deep recession between quarter two 2008 and quarter two 2009, the economy has been through a period of faltering economic growth. The preliminary estimate of GDP shows a fall by 0.7 per cent in quarter two 2012 (when the Diamond Jubilee took place), the third consecutive quarterly fall in GDP. It must also be noted that quarter two 2012 experienced the wettest April to June period on record, which is likely to have had an impact on certain sectors of the economy.
12.01 Jeremy Warner has posted a blog on today's GDP figures. This time, he argues, the Chancellor can't blame the weather or the eurozone:
Rather than showing the 5pc growth orginally anticipated, the economy has shrunk 0.3pc since the Coalition has been in power. To say this is politically uncomfortable for Osborne is a gross understatement. Osborne is justified in citing Labour's poisonous legacy, but it's his job to do something about it, and so far he's not achieved notable success. The macro-economic mix of tight fiscal and loose monetary policy is broadly correct, but there are substantive corrections that need to be made within it, and the Government needs to be much bolder on supply side reform.
11.43 More from George:
11.30 Shadow Chancellor Ed Balls has been speaking to Sky News this morning. The government needs a "Plan B" he said...again. He told Sky:
If these figures don't make the government wake up and see that they need to change course soon, I don't know what will. [We] can't rely on a short term Olympics boost to get long term growth [...} We've had so many excuses: the Royal Wedding, the snow, rain, sunshine. It doesn't change the fundamental reality.
11.15 George Osborne has told the BBC that one-off factors such as the Jubilee Bank Holiday were "not an excuse" for the disappointing figures. He said:
Frankly, even without that, these would be disappointing numbers, and they just remind us Britain has some deep-rooted economic problems that are going to take time to solve [...] We've also got the debt crisis abroad and all these things of course make it a big challenge for our country.
10.58 A spokesman for Germany's finance ministry has also denied that the country was pushing Spain to seek a bail-out (see 08.25). Johannes Blankenheim said:
That's absurd and not up for debate.
Mr Blankenheim also said that Germany remained the eurozone's stability anchor.
10.54 Back to Europe, where Germany has sold 30-year debt at record low interest rates of 2.17pc, compared with 2.41pc at a previous auction in April.
10.45 Here's a video of ONS chief economist Joe Grice on the economic contraction:
10.12 Another important point is highlighted by the BBC's business editor Robert Peston:
This was exactly what happened last quarter, when government spending hit record levels in spite of the austerity drive, rising by 1.6pc to £81.5bn and delivering 0.4 percentage points of overall economic growth.
10.04 And here's what Chancellor George Osborne had to say:
We all know the country has deep-rooted economic problems and these disappointing figures confirm that.
We're dealing with our debts at home and the debt crisis abroad. We've made progress over the last two years in cutting the deficit by 25pc and businesses have created over 800,000 new jobs.
But given what's happening in the world we need a relentless focus on the economy and recent announcements on infrastructure and lending show that's exactly what we're doing.
Gloomy figures: Mr Osborne described the GDP figures as "disappointing" (Photo: Reuters).
10.01 Reaction from the markets was mixed. Sterling fell by 0.8 cents against the dollar, while the FTSE 100 remained largely unchanged.
09.56 Brian Hilliard at Societe Generale, said:
This is amazingly weak, the thing that surprised me more than anything was the size of the fall in manufacturing, it's clear that it's hostile but not as hostile as this. It's clearly going to be reversed in Q3.
Everyone is going to worry that this means the recession is deepening, I think that's wrong. we are still struggling along with minimal positive underlying growth.
09.55 The reaction is coming in thick and fast. Howard Archer at IHS Global Insight, said:
This really is a very nasty surprise indeed. GDP contraction of 0.7% quarter-on-quarter in the second quarter is far deeper than anyone expected and is a very disappointing and worrying performance. Plunging construction and manufacturing output weighed down heavily on the economy while service sector activity also contracted marginally.
While part of the GDP contraction in the second quarter can be attributed to lost activity from the extra day's public holiday resulting from the Queen's Diamond Jubilee celebrations and to the very wet weather hitting retail sales and construction output, the economy's weakness clearly runs far deeper than that. This is highlighted by the fact that this was the third successive quarter of appreciable contraction, and the sharpest since the first quarter of 2009. The weakness of the economy is also highlighted by that fact that GDP is now 1.4% below the third quarter of 2011 and 4.5% below its peak level in the first quarter of 2008.
09.50 It's also worth remembering that this initial estimate is based on just 40pc of the total data the ONS will ultimately collect. So it is likely to be revised.
When data for the first quarter came out, several commentators, including the Bank of England, questioned the reliability of the ONS's construction data (which showed that the sector had contracted sharply), and highlighted that the -0.2pc initial estimate for Q1 would be revised. Britain may not be in recession after all, they insisted.
The figure was revised. To -0.3pc.
09.37 When things get bad, let's blame the weather. The Office for National Statistics (ONS) said that the poor weather and additional bank holiday had led to uncertainty in calculating GDP growth for June.
Britain's construction sector was the hardest hit over the quarter, with output decreasing by 5.2pc in the three months to June.
On an annual basis, the economy contracted by 0.8pc.
09.32 BREAKING
Wow. We thought it would be bad. But not this bad. The British economy contracted by 0.7pc during the second quarter - representing the largest quarterly contraction since Q1 2009. Economists surveyed by Bloomberg had forecast a contraction of 0.2pc.
09.26 Commenting on the Ifo data, Carsten Brzeski at ING, said:
It looks as if German businesses have finally woken up to reality. Today's Ifo index sends a clear warning that even the most solid ship can capsize in a rough thunderstorm."
Latest indicators should have been an urgent wake-up call for the German economy. There are clear signs that the manufacturing sector has rashly left the island of happiness.
With austerity-driven slowdowns coming now also to most other core Eurozone countries, an obvious cooling of the Chinese economy and a still not very dynamic US recovery, order books are emptying and companies have started to reduce stocks."
Nevertheless, the German economy could still be able to escape the real crisis feeling in the second quarter. Up to now, available hard data paint a less bleak picture of the German economy than soft indicators.
09.21 Commenting on a possible Moody's downgrade, Mr Wohlrabe said that he did not think Germany's prized AAA rating was under threat, and that Moody's had simply fired a warning shot for Germany not to overstretch itself.
09.16 Klaus Wohlrabe, Ifo economist, said that the uncertainty across the eurozone would increase over the coming months. The Ifo forecasts growth of 0.1pc over the third and fourth quarters.
In other words - the German economy will remain stagnant for most of this year.
09.07 Business confidence in Europe's largest economy fell to its lowest level in 28 months in July, as the eurozone's worsening debt crisis weighed on sentiment.
Germany's Ifo think tank said its business climate index, based on a monthly survey of some 7,000 companies, fell to 103.3 in July from 105.2 in June, the lowest reading since March 2010.
After closing at its lowest level since 2003 yesterday, the IBEX 35 index in Madrid is up 1.4pc at 6,041.20. The FTSE Mib in Milan is up 0.5pc at 12,419.15, while the FTSE 100 index in London is flat, at 5,490.16.
08.39 There could also be bad news for Britain this morning. The UK economy is expected to shrink for a third successive quarter, as the Jubilee holiday, weak domestic demand and the eurozone crisis dragged the economy down.
No party for the UK economy: economists say the work lost as a result of the extra day given for the Queen's Diamond Jubilee celebrations in June was a significant drag during the quarter (Christopher Pledger).
08.30 This morning, an official at the Spanish Economy Ministry told Bloomberg that the report was untrue.
08.25 Last night, elEconomista reported that Germany had urged Spain to join the dole queue in Brussels and request a €300bn bail-out.
The funds would initially come in the form of a €100bn loan from the eurozone's temporary bail-out pot, the European Financial Stability Facility (EFSF). The rest would become available once the European Stability Mechanism (ESM) came into effect, the paper said.
08.09 Spanish Economy Minister Luis de Guindos will hold talks with his French counterpart Pierre Moscovici in Paris today.
Yesterday, Mr de Guindos met German finance minister Wolfgang Schaeuble to discuss the situation in Spain. In a joint statement yesterday, they insisted:
The current levels of interest rates on sovereign debt markets don't correspond to the fundamentals of the Spanish economy.
Today, yields have climbed again.
08.05 The panic continues. Spanish borrowing costs on ten year debt have marched towards the 8pc mark this morning, at 7.74pc. Two year borrowing costs have surpassed the 7pc mark for the first time since 1996, and Italian yields aren't that far behind.
In short, things are bad.
08.00 Good morning and welcome back to our live coverage of the European debt crisis.
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